“I buy on the assumption that they could close the market the next day and not reopen it for five years.”
— Warren Buffett
One of the most important things investors can learn from Warren Buffett, is about how they approach their time horizon for an investment into a stock under consideration. Because immediately after buying shares of a given stock, investors will then be able to check on the day-to-day (and even minute-by-minute) market value. Some days the stock market will be up, other days down. These daily fluctuations can often distract from the long-term view. Today, we look at the result of a five year holding period for an investor who was considering T Rowe Price Group Inc. (NASD: TROW) back in 2015, bought the stock, ignored the market’s ups and downs, and simply held through to today.
| Start date: | 06/03/2015 |
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| End date: | 06/02/2020 | ||||
| Start price/share: | $79.97 | ||||
| End price/share: | $122.96 | ||||
| Starting shares: | 125.05 | ||||
| Ending shares: | 143.90 | ||||
| Dividends reinvested/share: | $12.74 | ||||
| Total return: | 76.94% | ||||
| Average annual return: | 12.08% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $17,691.97 | ||||
The above analysis shows the five year investment result worked out quite well, with an annualized rate of return of 12.08%. This would have turned a $10K investment made 5 years ago into $17,691.97 today (as of 06/02/2020). On a total return basis, that’s a result of 76.94% (something to think about: how might TROW shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that T Rowe Price Group Inc. paid investors a total of $12.74/share in dividends over the 5 holding period, marking a second component of the total return beyond share price change alone. Much like watering a tree, reinvesting dividends can help an investment to grow over time — for the above calculations we assume dividend reinvestment (and for this exercise the closing price on ex-date is used for the reinvestment of a given dividend).
Based upon the most recent annualized dividend rate of 3.6/share, we calculate that TROW has a current yield of approximately 2.93%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.6 against the original $79.97/share purchase price. This works out to a yield on cost of 3.66%.
One more piece of investment wisdom to leave you with:
“The policy of being too cautious is the greatest risk of all.” — Jawaharlal Nehru
